Are corporate buybacks the root of all evil? Well, S&P Senior Index Analyst Howard Silverblatt has repeatedly warned that they artificially inflate EPS, artificially lower PE ratios and detract from dividends. Something that was once a neat trick to keep the shareholders happy has now become something far more complicated.
S&P says that only 439 of the 7,000 companies for which it tracks dividends in its Dividend Record increased their payouts for the third quarter, a 7.6% decline from the 475 companies that did so for the prior-year period. The number of dividend extras, which was up for the first half of the year, was down 6.8% in the third quarter, to 82.
Silverblatt says fewer companies are making forward commitments to dividends.
"S&P believes that the explosion in corporate buyback activity is the primary contributor to the slower pace in dividend growth," he adds.
This is hardly the seventh sign of the apocalypse. The number of dividend payouts is still increasing, up 3.2% for the recent quarter, and 3.0% year-to-date. And the number of negative dividend actions— or the number of companies moving to reduce their dividends— was actually lower in the third quarter of 2007 than it was in 2006. However, the falloff in dividend growth indicates that a turning point may be approaching.
Written by Heather Bell